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Economy in Brief

Philadelphia Fed Nonmanufacturing Business Activity Backpedals
by Tom Moeller  September 24, 2019

The Federal Reserve Bank of Philadelphia reported that its Nonmanufacturing Business Index of current conditions at the company level fell to 29.4 in September after rising to 32.5 in August. Improving, however, was the index of expected general activity which rose to 30.7 and reversed nearly half of the prior month's decline. A separate general business activity reading for the region edged up to 9.5 from 7.5 in August.

The components of the company general activity index were mixed this month. Sales declined to 22.5 and reversed the August strength. A greatly lessened 40% of firms reported higher sales while a reduced 17% reported a decline. Countering this drop was m/m stability in the new orders index, even though it remained below the recent high of 25.5 in July. Unfilled orders weakened to -0.6, the first negative reading since last October. The figure was down after surging to 13.1 in July. Inventories eased slightly but remained up from the liquidation reported in May.

The labor market measures were mixed in September. Full-time permanent employment was unchanged at a net reading of 22.1. Thirty-one percent of firms reported increased hiring while nine percent indicated a decline. Part-time/temporary employee hiring picked up m/m to 23.5 and nearly equaled April's high. The workweek figure continued a decline to 12.4 from the March high of 29.9. The wages & benefits measure fell sharply to the lowest level since January.

Pricing power eased slightly. The index of prices paid fell to 26.5 this month after rising in August to the highest level in nine months. Thirty-two percent of firms reported higher prices while six percent indicated a decline. Prices received declined to 12.0 and were well below the June 2018 high of 28.1.

The capital expenditure measures were weak. The physical plant measure fell to 13.4, down from the January 2017 high of 35.3. The equipment & software expenditure reading collapsed to 18.5, down from the July 2018 high of 36.0.

The Philadelphia Fed figures are diffusion indexes which are calculated by subtracting the percent of respondents reporting decreases in business activity from those reporting improvement. So, readings above zero indicate more positive than negative responses. These indexes have a good correlation with growth in the series covered. The data are available in Haver's SURVEYS database.

Federal Reserve Bank of Philadelphia: Nonmanufacturing Business Outlook Survey (Diffusion Index, SA) Sep Aug Jul Sep'18 2018 2017 2016
General Activity - Company 29.4 32.5 24.6 45.7 33.6 27.3 19.7
  New Orders 9.7 9.4 25.5 26.8 24.3 19.1 15.8
  Sales or Revenue 22.5 28.5 22.5 39.5 30.9 27.9 16.1
  Inventories 5.0 5.8 8.6 13.2 5.2 3.8 4.3
  Number of Full-Time Permanent Employees 22.1 22.1 21.1 33.7 18.2 14.8 11.7
  Part-Time/Temporary/Contract Employees 23.5 13.5 11.6 20.8 15.6 12.4 11.8
  Prices Paid 26.5 29.2 12.2 26.5 28.3 21.4 17.6
  Wage & Benefit Costs 36.1 43.2 37.0 46.0 40.0 33.4 31.2
Expected General Activity - Company 30.7 26.8 36.0 52.8 50.2 50.1 43.2
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